Property tax reform may return to ballot

The head of an Arizona business group is girding for a new battle in his bid for lower property taxes for firms.

Such a measure — Proposition 116 — was on the ballot last year, and it was badly defeated. But Farrell Quinlan said if there is to be a 2014 measure, one thing will definitely be different: This time, he’ll have more money.

Lots more.

Quinlan said there’s nothing inherently wrong with the proposal to alter an existing constitutional provision which exempts the first $50,000 of the value of all business assets — land, building and equipment — from property taxes. With inflation, that figure has now risen to more than $68,000.

Proposition 116 would have boosted that exemption sharply — but only for equipment — using a formula tied to the median earnings in the state. Quinlan, state director of the National Federation of Independent Business, figures the formula would let companies have up to $2.4 million of their equipment escape taxes.

More than just tax liability is involved. Quinlan says the higher figure would eliminate the requirement for most small firms to even bother computing their property taxes each year.

So popular was the idea that it was put on the 2012 ballot by the Legislature with bipartisan support. And there was no organized opposition to Proposition 116.

The flip side of that, he said, was that businesses figured that lack of opposition made the measure a shoo-in.

“It made it impossible to raise money,” Quinlan said. The result was that the pro-116 campaign ended up with just slightly less than $57,000.

Proposition 116 failed by a 12-point margin. So Quinlan is going to try again.

At the heart of the issue is that businesses in Arizona pay annual property taxes not only on their land and buildings, as do residential property owners, but also on the value of their equipment, everything from major industrial robots to desks and file cabinets.

That value is based initially on the purchase price.

There are formulas for depreciating that value. But state law figures that if a piece of equipment is being used, it still has some residual value that is subject to tax.

Quinlan already has laid the groundwork at the Legislature to put the issue back on the ballot in 2014. But he is not pushing for a legislative vote — at least not yet.

First, he said, comes the fundraising. Quinlan says he has a goal of at least $500,000, with $1 million being more realistic to run a credible campaign.

“That would be the opening ante,” he said. Only after there is money in the bank — or at least pledges that can be counted on — will he ask lawmakers for another shot next year.

Quinlan specifically structured the measure to blunt opposition.

Generally speaking, cities, counties and school districts figure out how much money they need or are allowed to raise. Then they determine the total net assessed valuation of the district.

Dividing the first figure into the second creates a tax rate.

What happens is that if some property is taken off the tax rolls, that lowers the district’s net assessed valuation. And that means the overall tax rate, for everyone, has to go up to raise the same amount of cash.

The measure is crafted so the new, higher exemption would apply only to equipment not yet already owned. That would leave existing equipment above the current $68,079 exemption on the books.

Still, there would be some tax shift, largely to homeowners.

But a report prepared last year by the Joint Legislative Budget Committee on Proposition 116 figured that the difference on a home in Mesa with a primary assessed value of $114,000 would be $3.25 by 2015.

Quinlan conceded that shift would grow with time, as companies replace old equipment with new — and that new equipment does not wind up on the tax rolls. But he argued that approval of the measure ultimately would create more revenues overall.

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